A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees’ business expenses. How you report a reimbursement or allowance amount depends on whether you have an accountable or a nonaccountable plan. If a single payment includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.

These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a deduction by the employee.

Accountable plan.

To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules.

They must have paid or incurred deductible expenses while performing services as your employees. The reimbursement or advance must be payment for the expenses and must not be an amount that would have otherwise been paid to the employee as wages.

They must substantiate these expenses to you within a reasonable period of time.

They must return any amounts in excess of substantiated expenses within a reasonable period of time.

Amounts paid under an accountable plan aren’t wages and aren’t subject to income, social security, Medicare, and FUTA taxes.

If the expenses covered by this arrangement aren’t substantiated (or amounts in excess of substantiated expenses aren’t returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan. This amount is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time.

A reasonable period of time depends on the facts and circumstances. Generally, it is considered reasonable if your employees receive their advance within 30 days of the time they incur the expenses, adequately account for the expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses within 120 days after the expenses were paid or incurred. Also, it is considered reasonable if you give your employees a periodic statement (at least quarterly) that asks them to either return or adequately account for outstanding amounts and they do so within 120 days.

Nonaccountable plan.

Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to income, social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if:

Your employee isn’t required to or doesn’t substantiate timely those expenses to you with receipts or other documentation,

You advance an amount to your employee for business expenses and your employee isn’t required to or doesn’t return timely any amount he or she doesn’t use for business expenses,

You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or

You pay an amount as a reimbursement you would have otherwise paid as wages.

A recent judgment by the U.S. District Court for the District of Oregon requires the owner of a courier service, Gerald Brazie, Jr., and three of his Portland-based companies (Senvoy LLC, Driver Resources LLC, and ZoAn Management Inc.) to pay their drivers $3,087,100 in wages and liquidated damages as well as $112,900 in civil money penalties for violations of the Fair Labor Standards Act (FLSA). The companies must also classify all drivers as employees and obtain a third party audit to ensure compliance with the FLSA.

The companies initially classified the drivers as employees but converted them to independent contractors in 2010. As independent contractors, drivers were not paid overtime, minimum wage, or reimbursed for the costs of operating and owning or leasing their vehicles. The change in classification reflected an attempt to keep up with competitors who treated drivers as independent contractors pursuant to a common industry practice.

The District Court evaluated the relationship between the companies and drivers and ultimately found the drivers should be classified as employees based on the FLSA’s economic realities test. For example, the company controls the manner in which the work is performed in several ways including requiring drivers install a specific cell phone application for GPS tracking, requiring drivers wear uniforms, and preventing drivers from freely rejecting work. The drivers have little ability to profit depending on their own managerial skills because of limitations on hiring their own employees and working for other employers. These and other factors outweigh the fact that the drivers invest in their own vehicle, cell phone, uniform, fuel, and insurance, which tend to weigh in favor of an independent contractor classification.

This case is an important reminder that industry practice is not a defense to worker misclassification, and businesses should conduct a careful analysis to ensure compliance with federal and state law.

The rules around tip pooling have been mired in litigation since 2011, when regulations came into effect that forbid tip pooling between employees who customarily receive tips and those who do not. The recently passed federal budget bill has created clarity by amending the Fair Labor Standards Act (FLSA) and eliminating that rule for employers who do not take a tip credit. Since the rule has been eliminated entirely, court decisions interpreting it—such as Oregon Restaurant and Lodging Association, et al v. the U.S. Department of Labor—are irrelevant.

The amended portion of the FLSA, while allowing for tip pooling between front and back of house employees if no tip credit is taken, clearly states that tips cannot be shared with managers or supervisors. To determine if someone is a manager or supervisor for the purpose of the tip pooling statute, employers should apply the White Collar Executive duties test below. An employee is only disallowed from sharing in tips if all of the following are true:

Their primary duty is the management of an enterprise in which the person is employed or a customarily recognized department or subdivision; and

They customarily and regularly direct the work of two or more full-time employees (or the equivalent, e.g., four 20-hour per week employees); and

They have the authority to hire, fire, or promote other employees or effectively recommend similar actions.

Given the specificity of the test, a fair number of workers who operate in a supervisory capacity on an occasional basis, or while performing their own customer service tasks, will likely still be eligible to share in tips.

Employers who do take a tip credit are still prohibited from enforcing any tip pooling system that shares tips with employees who do not customarily receive tips.

In January of 2018, significant new laws affecting cleaning services in Oregon went into effect. Property Services contractors are required to obtain a labor contractor license from the Oregon Bureau of Labor and Industries (BOLI). Initially, BOLI was also requiring all property services contractors to submit weekly certified payroll reports. As of March 12, 2018, certified payrolls report are no longer required.

To read more about which professions fall under the Property Services/Janitorial Services rule, and the link to the revised 2018 Labor Contracting in the Janitorial Services Industry handbook, click here.

The Tax Cuts and Jobs Act signed into law by the President on December 22, 2017 made changes to Qualified Transportation Fringe Benefits that effect employers and employees.

Employers can no longer deduct the expenses for providing tax-free qualified transportation fringe benefits to employees, unless the employer treats the transportation fringe benefit as taxable W-2 wages to the employee.

Employees may still pay for transportation expenses with pre-tax dollars.

A Qualified Transportation Fringe is defined as:

Transportation in a commuter highway vehicle for travel between the employee’s residence and place of business

Transit passes

Qualified parking

Qualified bicycle commuting reimbursement

For 2018, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits will be $260 for parking at or near an employer’s worksite, or a facility from which the employee commutes via transit, vanpool or carpool.

Starting January 1, 2018, employers in Washington will be required to provide most of their employees with sick leave.

Accrual

Most employees must accrue paid sick leave at a minimum rate of one hour of paid sick leave for every 40 hours worked. This includes part-time and seasonal workers.

Paid sick leave must be paid to employees at their normal hourly compensation rate.

Employees are entitled to use accrued paid sick leave beginning on the 90th calendar day after the start of their employment.

Unused paid sick leave of 40 hours or less must be carried over to the following year.

Usage

Employees must be paid sick leave:

To care for themselves or their family members

When the employee’s workplace or their child’s school or place of care has been closed by a public official for any health-related reason

For absences that qualify for leave under the state’s Domestic Violence Leave Act.

Employers may allow employees to use paid sick leave for additional purposes.

Rulemaking for paid sick leave

The Department of Labor & Industries (L&I) is developing rules to explain and enforce the new requirements. These rules will include:

Procedures for employers to notify their employees

Recordkeeping and reporting requirements regarding paid sick leave

Processes to protect employees from retaliation for the lawful use of paid sick leave

The rules are being developed in two phases:

employer requirements and employee rights, and

enforcement of the new law

Opportunities for public comment on employer requirements and employee rights ended September 1. Rulemaking for enforcement of the new law is underway and includes opportunities for public comment at these public hearings:

If you plan to change the account you use to fund your payroll, we need to know!

Please let your payroll specialist know as soon as you know you will be making a change. Your Payroll Specialist will provide you with a new Electronic Funds Transfer authorization form. We will also need a voided check for the new account.

Using these two items, your Payroll Specialist will re-enroll your company for EFT with the new bank account information. This process takes a minimum of 2 business days.

When T4P runs your payroll, we always make sure you are notified of your cash requirement amounts.

The fund transactions will be of different types: payroll direct deposit, live checks, taxes and payroll service invoice.

In your payroll bundle there is one report in particular that brings it all together for you: the Cover Page.

On the right side of the Cover Page you will notice a Bank Information section which will look something like this:

Sample of Bank Account Information section of Cover Page

Remember, the electronic debits will be effective early morning the banking day before your pay date (before the bank even opens), unless you have made a different arrangement with your Payroll Specialist.

What is it?

Form I-9 (Employment Eligibility Verification) requirements stem from the Immigration Reform and Control Act of 1986. This act prohibits employers from hiring and employing an individual for employment in the U.S. knowing that the individual is not authorized with respect to such employment. Employers are also prohibited from continuing to employ an individual knowing that he or she is unauthorized for employment. This law also prohibits employers from hiring any individual, including a U.S. citizen, for employment in the U.S. without verifying his or her identity and employment authorization on Form I-9.

Who must fill out the form?

Employers are required to complete and retain a form I-9 for every employee they hire for employment in the United States, except for:

Individuals hired on or before November 6, 1986 who are continuing in their employment

Individuals employed for casual domestic work in a private home on a sporadic, irregular, or intermittent basis

Independent contractors or individuals providing labor to you if they are employed by a contractor providing contract services (for example, employee leasing or temporary agencies)

Individuals not physically working in the U.S.

Federal law prohibits individuals or businesses from contracting with an independent contractor knowing that the independent contractor is not authorized to work in the U.S.

Section Three: Reverification and Rehires (completed by employers for employees who are rehired or whose employment authorization requires reverification)

Section 1

When completing Form I-9, you must make available to your employee the complete instructions to the form and the list of acceptable documents. Your newly hired employee must complete and sign Section 1 of Form I-9 no later than their first day of employment.

You may have your employee complete Form I-9:

On their first day of employment for pay

Before their first day of hire, if you have offered the individual a job and if they have accepted the offer

Employee responsibilities for Section 1

Employees can have help completing Section 1, including using a translator.

Employees must provide their:

Full legal name

if the employee has two last names (family names), include both. If the employee has two first names (given names), include both

if the employee only has one name, enter it in the Last Name field, then enter “Unknown” in the First Name field

If the employee hyphenates his or her first or last names, include the hyphen (-) between the names

Include the middle initial, if the employee has a middle name

Other names used, if applicable, such as maiden name

Current address, including street name and number, city state and ZIP code. Include the apartment number or letter if applicable

Date of birth

Check mark next to the appropriate box to indicate whether they are a U.S. citizen or noncitizen national, lawful permanent resident of the U.S., or alien authorized to work in the U.S.

Alien Number/USCIS Number, Form I-94 admission number, or foreign passport number, including country of issuance

Signature and date

Employer responsibilities for Section 1

You must:

Review the information your employee provided in Section 1

Ensure that your employee provided information in all required fields (note: your employees are not required to provide a Social Security Number in Section 1)

Ensure your employee signed and dated the form

Ensure the Preparer or Translator section has been completed, signed, and dated if your employee used a preparer or translator

In addition:

You should note whether your employee indicated in Section 1 that their employment authorization will expire.

You may need to reverify your employee’s authorization when it expires. You may want to remind your employees at least 90 days before the expiration date that they will need to present a List A or List C document to show continued employment authorization for reverification purposes. Employees must present these documents on or before the date their current employment authorization expires.

The expiration date for employment authorization provided by your employee in Section 1 may or may not match the expiration date of the List A or List C document your employee presents for Section 2. The earlier date should be used for verification purposes.

Section 2

Employers must complete and sign Section 2 of Form I-9 within 3 business days of the date of hire of their employee.

Employee responsibilities for Section 2

Employees must present unexpired original documentation that shows the employer their identity and employment authorization. Your employees choose which documentation to present.

Employees must present:

One document from List A; or

One document from List B in combination with one document from List C

Note:

List A contains documents that show both identity and employment authorization

List B documents show identity only

List C documents show employment authorization only

Employer responsibilities for Section 2

An employer or an authorized representative of the employer completes Section 2. Employers or their authorized representatives must physically examine the documentation presented by the employee and sign the form.

The employer or authorized representative must:

Enter the employee’s last name, first name, middle initial, and select the correct citizenship/immigration number in the “Employee Info from Section 1” area at the top of Section 2

Ensure that any document your employee presents is original and on the list of acceptable documents, or is an acceptable receipt

Physically examine each document to determine if it reasonably appears to be genuine and to relate to your employee presenting it. If you determine the document does not reasonably appear to be genuine or relate to your employee, allow your employee to present other documentation from the List of Acceptable Documents

Enter the first and last name, signature, and title of the person completing Section 2, as well as the date the Section was completed

Enter the employer’s business name and address. If your company has multiple locations, use the most appropriate address, such as where Form I-9 is completed

Return the documentation presented back to the employee

Section 3

Employers must complete Section 3 when an employee’s employment authorization or documentation of employment authorization has expired.

Employers may complete Section 3 when an employee is rehired within 3 years of the date that the Form I-9 was originally completed, or the employee has had a legal name change.

Employers should not reverify:

U.S. citizens and noncitizen nationals

Lawful permanent residents who presented a Form I-551, Permanent Resident or Alien Registration Receipt card for Section 2. This includes conditional residents.

List B documents

Rehires

If you rehire an employee within 3 years of the date that a previous I-9 form was complete, you may either complete a new Form I-9 for your employee or complete Section 3 of the previous I-9.

To complete Section 3 for rehires, you must:

Confirm that the original Form I-9 relates to your employee

Review the original Form I-9 to determine if the employee is still authorized to work, including whether employment authorization documentation presented in Section 2 (List A or List C) as since expired.

If your employee is still authorized to work, enter the date of rehire in the space provided in Section 3.

If the employee is no longer authorized to work or the employment authorization documentation has since expired, request that the employee present an unexpired List A or List C document. Do not reverify an employee’s List B (identity) document. Enter the document information and the date of rehire in the spaces provided in Section 3. If the current version of Form I-9 is different from the previously completed form, you must complete Section 3 on the current version